CIBC Markets Inc report says, approximately 25 per cent raise in gasoline price last year will cost Canadian households more or less $12 billion this year.
According to Benjamin Tal, Deputy Chief Economist at CIBC: that as of 2010 the entire energy expenditure of Canadian households reached $88 billion. If the recent hike in energy prices remained this might lead to over $12 billion or close to $950 per household this year, Tal added. In other words, seven percent increase in the average Canadian income tax bill.
The current was observed similar to the 2008 oil shock. Today, gasoline prices are now 30 per cent higher than what was observed during the 1991 shock. The condition might have projected to majority of Canadians, but it is the low- and middle- income households who receive the major blow because energy represents a much larger share of their overall spending.
While gas prices empty Canadian pockets, Tal doesn’t expect to see drivers parking their cars and taking bus until prices come down.
“If history is any guide, higher prices will not impact demand for gasoline in the near-term,” he added. “In the most recent energy shock, the 40 per cent increase in prices between October 2007 and July 2008 met with virtually no change in the aggregate volume of gasoline consumption.”
To deal with the issue, Canadians bought less motor vehicles and parts as well as on less essential items such as sporting goods, clothing and personal care. There has been a change with eating habits as well.
“On average, it is estimated that the 25 per cent increase in gas prices will cut the net price paid per grocery item by two to three per cent, ” Tal said.
He said that if it weren’t for the recent rise in the Canadian dollar, Canadian consumers would be feeling the hear of gasoline prices even more.
“The rising value of the Canadian dollar has mitigated the price increase for consumers in Canada. Gas prices in Canada have risen by 23 per cent since September 2010 vs a 32 per cent increase in the U.S. This gap is mostly explained by the eight per cent appreciation in the value of the loonie against the U.S. dollar since September 2010, and to a lesser extent the high level of fixed gasoline tax here.”
In every angle, there’s no doubt that energy costs majorly affects Canadian households expenditure. In line with this, the impact of speed and composition of growth in personal consumption; and the health of Canada’s retail sector as well.
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